On 12 July 2024, the Court of Appeal handed down judgment in the latest hearing in the high profile dispute between Process & Industrial Developments Limited (P&ID) and The Federal Republic of Nigeria (Nigeria).[1]
The Court of Appeal held that the Judge at first instance was right to order P&ID to pay Nigeria’s costs in sterling. It refused P&ID’s submissions that the order should be paid in naira, regardless of the contention that Nigeria stood to receive a potential windfall due to the fluctuation in the exchange rate.
Brief background to the case
In 2017, an arbitration tribunal ordered Nigeria to pay $6.6 billion to P&ID for lost profits arising from a gas processing contract.
Taking interest into account, the award had reached $11 billion by the start of a trial in the High Court of England & Wales in March 2023.
During that trial, Judge Knowles found that P&ID’s former co-founder had bribed the official responsible for negotiating the contract. Bribes had continued to flow from P&ID to the witness throughout the arbitration.
Judge Knowles ruled that the $11 billion arbitration award issued against Nigeria was procured by fraud in a manner contrary to public policy under section 68(g) of the Arbitration Act 1996. Accordingly, the arbitration award was set aside by the High Court and ceased to have any effect.
This was a landmark decision of the court’s intervention in the arbitral process, and one of the few circumstances that meet the very high threshold of section 68.
The appeal in relation to currency
The appeal in April 2024 related to the currency in which the order for costs was made in the 2023 trial. The question was whether the Judge was right to order P&ID to pay Nigeria’s costs in sterling, rather than naira.
Nigeria’s position was that it paid the bills in the litigation in sterling. In accordance with the indemnity principle, the order for payment of its costs should be in sterling.
P&ID’s argument was that the purpose of an award is to compensate Nigeria for its losses sustained by reason of paying the costs of the proceedings. In reality, Nigeria suffered its losses in naira because it could be presumed to have taken naira from its central government funds and converted the naira into sterling to fund the payment of its lawyers’ bills.
The reason it matters is because the naira depreciated significantly against the sterling in the period between Nigeria’s payments to its lawyers and the making of the costs order. Nigeria’s fees and disbursements amounted to around £43 million. If P&ID is required to pay £43 million in costs now, that could be exchanged by Nigeria at the current rate to about 76 billion naira. Previously, it would have amount to around 23 billion naira.
The indemnity principle
The Court of Appeal considered the indemnity principle in detail in reaching its decision.
P&ID relied upon analysis of John Kimbell QC (sitting as Deputy High Court Judge) in Cathay Pacific Airlines v Lufthansa [2019] EWHC 715 (Ch); the key points being as follows:
- Costs awarded by the courts are awards of a statutory indemnity.
- Costs are given as an indemnity to the person entitled to them. They are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them.
- Costs are intended to be compensatory. The litigant is compensated for the liability he has incurred to his own lawyers.
- The court should identify the currency in which the loss is actually felt or borne.
- Whether the source of the right to the indemnity is in contract or statute makes no difference. In both cases, it is appropriate to inquire as to the currency which most truly reflects the loss which the claimant has suffered.
The Court of Appeal judge, Mr Justice Robin Knowles CBE, largely agreed with this analysis, save for one point. He did not consider than an award of costs should be viewed as an indemnity which is designed to compensate a receiving party against loss. Rather, an award of costs is a statutory indemnity against the liability that the receiving party has incurred to his own lawyers.
He drew a parallel with the ‘many cases’ in which costs have been awarded to a successful party, even though they have suffered no loss personally because a third party paid the lawyers’ fees. Cases funded by a union, insurer or litigation funder are examples.
The decision
The panel of three Court of Appeal judges agreed that the Judge at first instance was right to accept Nigeria’s straightforward submission that because Nigeria had been invoiced, and incurred its liability to its solicitors in sterling, and had paid those bills in sterling, the court ought to make its costs order in sterling.
The arrangements they had in place to obtain the funds to pay their lawyers was of no consequence. Whether or not Nigeria took naira from its central government funds and converted the naira into sterling to pay the bills did not matter.
The costs award is to cover the winning party’s liability that it incurred to its lawyers, which is not necessarily the same as its ‘loss’.
Sources
